Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Personal care products maker’s unfair competition claims proceed against competitor, (Dec 17, 2014)

By Linda O’Brien, J.D., LL.M.

A personal care products company alleged sufficient facts to pursue unfair competition counterclaims against a competitor for avoiding government labeling requirements in order to reduce costs, diverting market share away for the company, and damaging the company’s goodwill with existing and potential customers, the federal district court in San Francisco has decided. However, the company’s false advertising counterclaims were dismissed (A.P. Deauville, LLC v. Arion Perfume and Beauty, Inc., December 12, 2014, Breyer, C.).

A.P. Deauville is a marketer and manufacturer of men’s personal care products, including the Power Stick brand of deodorant, body spray, and body wash, which are sold exclusively at value-price retailers. Arion Perfume and Beauty sells “European American Design” (EAD) men’s deodorant, body spray, and body wash products, which compete with Deauville’s products.

Deauville brought unfair competition and false advertising claims against Arion under the Lanham Act, the California Unfair Competition Law (UCL), and the California False Advertising Law (FAL). Deauville alleged that the EAD product labels contained false and misleading statements and were likely to deceive consumers. Arion asserted counterclaims, alleging that statements on Deauville’s Power Stick products also were misleading. In particular, Arion claimed that Deauville’s statements about the U.S. origin of the products was misleading and violated Food and Drug Administration (FDA) labeling requirements. Deauville moved to dismiss the counterclaims.

Unfair competition claims. The court determined that Arion stated a plausible claim for unfair competition in relation to the Power Stick deodorant products alleged labeling violations. A party can bring a claim under the UCL if it can establish injury in fact. Arion alleged that Deauville was able to (1) charge less for similar products by avoiding FDA labeling requirements and retain greater profit; (2) do more marketing and advertising due to the increased profit; and (3) unfairly gain market power, divert customers from Arion, and injure Arion’s relationships with existing or potential customers. In the court’s view, Arion alleged a plausible chain of injury and its general allegations of economic injury resulting from Deauville’s conduct were sufficient at the pleading stage of the litigation.

False advertising claims. However, Arion failed to state a claim for false advertising under the Lanham Act. The FTC, which regulates claims of U.S. origin in advertising, permits unqualified statements of U.S. origin only when virtually all of the product ingredients are domestic and the product contains no more than a de minimis amount of foreign content, the court explained. It was undisputed that Deauville’s Power Stick product labels contained a qualified U.S. origin statement, “Made in the U.S.A. and/or imported ingredients,” and was advertised using unqualified statements, “manufactured in the USA.” While Deauville’s U.S. origin statements could be misleading to consumers if the products contained more than a de minimis amount of foreign content, Arion was required to allege facts suggesting that confusion could be proven. Since Arion failed to adequately allege falsity or a likelihood of deception, it therefore failed to state a provable false advertising counterclaim, the court concluded.

The case is No. C14-03343.

Attorneys: Jonathan L. Koenig (Arnold and Porter LLP) for A.P. Deauville, LLC. Pamela K. Fulmer (Arent Fox LLP) for Arion Perfume & Beauty, Inc.

Companies: A.P. Deauville, LLC; Arion Perfume and Beauty, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews